Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
Although the temporary postponement of most of the tariffs announced on 2 April has sharpened the focus on the tense relationship between the two superpowers USA and China, the US administration is de facto fighting against all trading partners. And even if mutually acceptable "deals" reached with many countries in the 90-day window, the question arises as to how much the global economic climate has already deteriorated as a result of the general irritation.
In any case, growth estimates, particularly for the USA, have been sharply reduced in recent weeks and the CEO Confidence Index, which measures the mood among American executives, has also fallen abruptly. In the course of the current reporting season, a challenging environment is being reported more frequently than ever before. Company bosses are currently sceptical both the outlook and possible investments.
The limited ability to plan for companies on the one hand foreseeable pressure on margins on the other are weighing on earnings prospects, especially as higher costs cannot passed on to customers in full. Analysts are already revising their profit estimates for 2025 downwards significantly, even though they are still expecting corporate profits to grow compared to the previous year, albeit at a lower rate. Overall, the warning signals based on surveys and forecasts are increasing and a weakening of the official "hard data" can therefore also be expected in the coming months.
Until there is a corresponding slowdown in the currently still robust labour market, the US Federal Reserve Chairman will remain in wait-and-see mode and not cut interest rates any further for the time being, especially as the risk of inflation remains high due to the expected effects of import tariffs. The current conditions can be characterised as unstable and therefore particularly difficult due to the ongoing uncertainty - this applies to both the real economy and the capital market.
Overview of asset classes
Government bonds
Steeper yield curves at the long end likely
We expect lower yields on German government bonds with a medium maturity (5 years) and are correspondingly cautious here. Due to the lack of predictability of the US administration, we remain duration-neutral on US government bonds for the time being but expect (as with German government bonds) a steeper yield curve at the long end (10/30-year yield curve). We are positive about euro government bonds, particularly French and German bonds.
Corporate bonds
US economic policy weakens the US corporate sector
In the corporate bond market, we have been and remain cautious on US high-yield corporate bonds. The economic policy favoured by US President Trump is likely to further weaken the corporate sector, which is firmly anchored there. We expect risk premiums to rise and are therefore cautious about this bond class. We remain neutrally positioned in the market for euro corporate bonds. However, we do not expect risk premiums to narrow significantly here.
Emerging markets bonds
Emerging market bonds with inherent risk factors
We remain defensively positioned in emerging market hard currency bonds. The decisive factor for us is the expected higher risk aversion of USD bond investors. Although the risk premiums of emerging market hard currency bonds have risen moderately since mid-February 2025, the current spread level does not adequately discount the inherent risk factors in our opinion.
Developed equity markets
Erratic US policy causes ongoing uncertainty
The global stock markets have recovered surprisingly quickly from the "tariff shock". Hopes of lower tariffs and swift trade agreements currently seem to dominate. However, we continue to expect the erratic measures from the US cause ongoing uncertainty. Lower economic growth coupled with higher inflation rates will also weigh on the corporate sector. Our indicators have deteriorated further and we are therefore scaling back our equity positioning - temporarily.
Emerging equity markets
Recovery in earnings performance in the Asian region
Following the mixed performance of US equities since the beginning of the year, emerging market equities have continued to catch up in relative terms, albeit from a very low level. The measures taken by the US government seem increasingly erratic, meaning that uncertainty is being priced in rather than out of the US. At the same time, the fundamental valuation for the emerging market region remains quite favourable. There has also been a recovery in earnings growth in Asia, which is very important for the index. Since the beginning of the year, telecoms and cyclical consumer goods have benefited.
Commodity markets
Sharp increases in production are weighing on the energy sector
The international commodity markets have recently presented a very mixed picture. Precious metals were able to again. The sector is benefiting from global uncertainty and central bank purchases are providing ongoing support. While industrial metals also slight gains, the surprisingly strong increase in production weighed on the energy sector.